Think Like a Private Equity Investor

By

Tim Melvin

| Jan 28, 2013 | 4:00 PM EST

Over the weekend I spent a lot of time debating the attributes of the Super Bowl teams, spring training baseball and the best way to pick stocks in a tricky market. A lot of good ideas were tossed around, including buying stocks that might benefit from the Obama administration's political agenda, stocks with strong earnings momentum and buying issues with particular technical or statistical patterns. While not dismissive of any of them, my opinion is that in any market, especially a tricky one like we face now, it is best to think like a private equity investor.

Private equity investors do not really spend a lot of time worrying about who is in the White House or what the next quarterly earnings report will be in comparison to the analyst estimates. Private equity investors are looking to buy assets today for a lot less than they can sell them in four to seven years. They look for assets, cash flows and brands that are cheap relative to their value that can be purchased and managed to produce cash flow and be sold for at a much higher price later. Often they are looking in sectors that are unloved by most investors but still viable over the long run. They like to buy ugly and sell pretty. They buy the business and hold it until it is once again popular and highly valued....508 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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